Buy Shriram Transport Finance Ltd For Target Rs.1,455 - Emkay Global
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Robust performance; favorable risk reward
* Our preference for SHTF during current uncertain times is backed by their unique customer base with a moat and certainty in demand for used vehicle. SHTF has reported robust growth in disbursements to Rs125.3bn (+94% qoq, +9.9% yoy), which is ~60% higher than our and Street estimates.
* The company reported a PAT of Rs7.27bn, aided by improving margins (calc. NIMs of ~761bps), consistency in operating leverage (C/I ratio at ~23.4%) and steady credit costs (~236bps). Provision coverage improved further to ~41.2% with proforma GNPAs declining to 7.11% from 7.26% during last quarter.
* Covid-specific provisions were maintained at Rs25.1bn, built in through elevated loss given defaults assumptions across buckets. SHTF saw further improvement in collection efficiency to ~104% in Dec’20 from ~95% in Sept’20. Restructured loans stand at Rs3.1bn (~0.3% of AUM) but may rise up to ~3% of portfolio.
* We raise our FY22/23E earnings by ~26.2%/23.3%. SHTF remains one of the top picks from our NBFC coverage. We maintain our Buy rating (OW in EAP) on the stock with a revised TP of Rs1,455 (Rs800 earlier), corresponding to 1.4x P/Adj Book for FY23E.
What we like about SHTF results
* We like SHTF’s CAR of ~23.61% (post rights issue of Rs15bn), strong liquidity buffer of ~Rs 134 bn (~11% of AUM) and multiple sources of funding.
* Calculated margins witnessed a strong improvement at ~761bps against ~727bps last quarter. The improvement was attributable to a higher share of used vehicles and lower cost of funds.
* Proforma Gross Stage 3 eased further to 7.11% from 7.26% last quarter, whereas Net Stage 3 improved to 4.31% against 4.51% last quarter.
* Coverage ratio further improved to 41.2%.Overall collection efficiency had seen a sharp improvement from 78% in Aug’20 to ~95%, ~97%, ~97% and ~104% in Sep’20, Oct’20, Nov’20 and Dec’20, respectively.
Where we remain concerned
* Restructured loans currently stand at Rs3.1bn (~0.3% of AUM). However, these may rise up to ~3% of portfolio
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